Are high stock prices backed by profits or an overheated market? Money Morning’s Keith Fitz-Gerald shares his earnings expectations with Fox Business’ “Varney & Co.”...
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Corporate Earnings
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Can Corporate Earnings Keep Up with Soaring Stock Prices?
Let's Make a Deal: How the Mergers-and-Acquisitions Boom Will Hurt the U.S. Economy
With its $39 billion hostile bid for Canada's Potash Corp. (NYSE: POT), mining giant BHP Billiton Ltd. (NYSE ADR: BHP) capped an active August in the mergers-and-acquisitions market.
With the moribund growth prospects of the U.S. economy, there would seem to be no great urgency for companies to go on an M&A spree, yet the total value of announced buyout deals for August alone has topped $175 billion.
Cynics are reaching only one conclusion: With interest rates so low and corporations so cash-rich, it seems that company management teams would rather do anything with that cash than to give it back to shareholders via stock buybacks or boosted dividends.
And those deals signal additional trouble ahead for the U.S. economy.
With the moribund growth prospects of the U.S. economy, there would seem to be no great urgency for companies to go on an M&A spree, yet the total value of announced buyout deals for August alone has topped $175 billion.
Cynics are reaching only one conclusion: With interest rates so low and corporations so cash-rich, it seems that company management teams would rather do anything with that cash than to give it back to shareholders via stock buybacks or boosted dividends.
And those deals signal additional trouble ahead for the U.S. economy.
To understand the problems that this rampant dealmaking figures to cause, please read on...
Buy, Sell or Hold: The Clorox Co. (NYSE:CLX) Is Cleaning Up
The Clorox Co. (NYSE:CLX) on Thursday reported net earnings of $171 million on sales of $1.52 billion for the fourth quarter of fiscal year 2010 ended June 30, compared to net earnings of $170 million on net sales of $1.5 billion the year prior.
This continued the company's trend of improvement. But more importantly, the bulk of Clorox's profit and margin growth came from its international unit, and the firm projected an expansion in earnings per share of at least 10% to 14% for next fiscal year.
Boring is beautiful when you're dealing with consumer staples, since share prices improve with incremental increases in sales and margins. In Clorox's case, this has meant taking advantage of low rates and dependable cashflow to finance expansion plans. But the good news is that the high financial leverage results in an exorbitant return on equity.
This continued the company's trend of improvement. But more importantly, the bulk of Clorox's profit and margin growth came from its international unit, and the firm projected an expansion in earnings per share of at least 10% to 14% for next fiscal year.
Boring is beautiful when you're dealing with consumer staples, since share prices improve with incremental increases in sales and margins. In Clorox's case, this has meant taking advantage of low rates and dependable cashflow to finance expansion plans. But the good news is that the high financial leverage results in an exorbitant return on equity.
Why Second Quarter Earnings Haven't Spurred a Stock Market Rally
Second quarter earnings season is in full swing on Wall Street and investors are keeping a close eye on corporate profits.
But rather than pinning their hopes on earnings for relief from the recent downturn in stocks, investors seem to be suffering from tunnel vision. They're ignoring numerous positive earnings reports and instead focusing on macro-economic trends to determine the day-to-day fate of the markets.
And as a slew of economic reports continue to display conflicting trends, investors are finding it difficult to read the tea leaves. So far this earnings season, the market and the investors that drive it are all over the place.
The result has been a string of volatile trading days featuring gyrating and erratic stock trading.
But rather than pinning their hopes on earnings for relief from the recent downturn in stocks, investors seem to be suffering from tunnel vision. They're ignoring numerous positive earnings reports and instead focusing on macro-economic trends to determine the day-to-day fate of the markets.
And as a slew of economic reports continue to display conflicting trends, investors are finding it difficult to read the tea leaves. So far this earnings season, the market and the investors that drive it are all over the place.
The result has been a string of volatile trading days featuring gyrating and erratic stock trading.
Buy, Sell or Hold: Joy Global Inc. (NYSE: JOYG) Could Be a Gold Mine for Investors
Uncertainty and volatility have plagued the markets of late but there's reason enough to believe a short-term up-trend is in store.
For one thing, the speed of recovery has varied from country to country but emerging markets and commodity-producing nations continue to post strong growth. And while the global slowdown has brought about very high fiscal deficits, particularly in Europe, fears that the Eurozone economy is edging towards collapse are beginning to dissipate.
The European debt problem should be addressed at the end of this month, when the European Central Bank (ECB) publicizes the results of its stress tests. I expect the results will bring renewed confidence in the system. It's likely that the largest financial institutions will most probably all be sound, while there will be some smaller institutions that need restructuring. These smaller banks will either quickly recapitalize or be absorbed by larger institutions.
That means we could soon see a strong short-term bullish market trend.
Meanwhile, the International Monetary Fund's (IMF) recent World Economic Report Update showed global growth estimates for the next year and a half that were much stronger than expected.
For one thing, the speed of recovery has varied from country to country but emerging markets and commodity-producing nations continue to post strong growth. And while the global slowdown has brought about very high fiscal deficits, particularly in Europe, fears that the Eurozone economy is edging towards collapse are beginning to dissipate.
The European debt problem should be addressed at the end of this month, when the European Central Bank (ECB) publicizes the results of its stress tests. I expect the results will bring renewed confidence in the system. It's likely that the largest financial institutions will most probably all be sound, while there will be some smaller institutions that need restructuring. These smaller banks will either quickly recapitalize or be absorbed by larger institutions.
That means we could soon see a strong short-term bullish market trend.
Meanwhile, the International Monetary Fund's (IMF) recent World Economic Report Update showed global growth estimates for the next year and a half that were much stronger than expected.
The S&P 500 is Set for a Surge... But It Won't Come Easy
Stocks zipped higher in the past week, capping the first four-day rally since early 2009. Get out the party hats and confetti, right? Bears tried to knock shares lower on Tuesday and early Thursday, but after they failed bids hit the tape in a big way and gave it lift.
Technically, stocks continued to move out of the invalidated head-and-shoulders pattern we've discussed lately. With support below at 1,040, the S&P 500 Index should be good for a run to resistance at the 1,095 to 1,115 area in coming days as long as earnings reports and corporate outlooks are supportive.
But the bulls have their work cut out for them there.
Technically, stocks continued to move out of the invalidated head-and-shoulders pattern we've discussed lately. With support below at 1,040, the S&P 500 Index should be good for a run to resistance at the 1,095 to 1,115 area in coming days as long as earnings reports and corporate outlooks are supportive.
But the bulls have their work cut out for them there.
To find out more about where stocks are headed next read on...
Two Big Reasons to Believe the U.S. Stock Market Will Bounce Back
There's been a lot of cheerless news coming out of Europe lately, and that's taken a toll on the U.S. stock market. But I want to take this opportunity to offer up some positive points and remind investors that it's still too early to declare the bull-market dead, and even more premature to fret over a new bear market beginning.
There are two key considerations that support a continued rise in U.S. stocks:
To find out why it's too early to give up on stocks, read on...
There are two key considerations that support a continued rise in U.S. stocks:
To find out why it's too early to give up on stocks, read on...
Question of the Week: Readers Respond to Money Morning's Corporate Profits Query
Corporate profits returned in full in the first quarter of the year, with company after company topping Wall Street estimates.
JPMorgan Chase & Co. (NYSE: JPM) raked in $3.33 billion in first-quarter net income. Ford Motor Co. (NYSE: F) beat analysts' estimates with a $2.1 billion profit. Apple Inc (Nasdaq: AAPL) brought in $3.38 billion.
"There is clear and broad-based improvement in the economic factors in the United States and around the world," said JPMorgan Chief Executive Officer Jamie Dimon. "It appears to be strengthening, not weakening. It is possible that they will strengthen enough to end up with a strong recovery."
JPMorgan Chase & Co. (NYSE: JPM) raked in $3.33 billion in first-quarter net income. Ford Motor Co. (NYSE: F) beat analysts' estimates with a $2.1 billion profit. Apple Inc (Nasdaq: AAPL) brought in $3.38 billion.
"There is clear and broad-based improvement in the economic factors in the United States and around the world," said JPMorgan Chief Executive Officer Jamie Dimon. "It appears to be strengthening, not weakening. It is possible that they will strengthen enough to end up with a strong recovery."
A V-Shaped Recovery? Don't Bet On It
Corporate profits appear to have returned in full, manufacturing is picking up around the world, commodities prices have rallied and the Standard & Poor's 500 Index is up about 60% since last March.
That makes a pretty compelling case for what some analysts are calling a "V-shaped" recovery. But even with all the momentum the economic recovery has accrued, that kind of talk may be a bit premature.
That makes a pretty compelling case for what some analysts are calling a "V-shaped" recovery. But even with all the momentum the economic recovery has accrued, that kind of talk may be a bit premature.
Stocks - Led by Apple Inc. - On a Hot Bull Run No Investor Should Miss
Stocks flipped out late Friday morning following an announcement of Greece's decision to seek help from the European Union and International Monetary Fund. But by the end of the session, cooler heads began to prevail and the major indexes ended well into the black, continuing the bull run.
The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq all closed about 1.1% lower for the session, but the week's results were a lot better: flat for the Dow and S&P 500, up 0.75% for the S&P Midcap 400 and up 1.7% for the S&P Smallcap 600.
Overseas large-caps ended the week flat, though China sank another 1%. Our own top choice overseas fared better, as Market Vectors Indonesia Index (NYSE: IDX) closed the week up 4%. Another star off the week overseas was iShares MSCI Turkey Index Fund (NYSE: TUR), up 3%.
The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq all closed about 1.1% lower for the session, but the week's results were a lot better: flat for the Dow and S&P 500, up 0.75% for the S&P Midcap 400 and up 1.7% for the S&P Smallcap 600.
Overseas large-caps ended the week flat, though China sank another 1%. Our own top choice overseas fared better, as Market Vectors Indonesia Index (NYSE: IDX) closed the week up 4%. Another star off the week overseas was iShares MSCI Turkey Index Fund (NYSE: TUR), up 3%.
Fastest Recovery Ever Could Push Corporate Profits to Record Highs in 2010
Sometimes we get a little carried away talking about esoteric subjects like bulls, bears, supply, demand, moving averages and the like. But if you just want to focus on something real, then look at corporate profits. When they're rising from a low, that's good; when they're flat-lining or declining, that's bad. Pretty simple.
Much of the rally of the past year has been in anticipation of a profit recovery. And now that recovery is actually coming in a bit better than bulls expected, which is why they are able to elbow bears so effectively. ISI Group now figures that corporate profits will clock in at +38.8% for the first quarter (year over year) of 2010, then +42.4% in the second quarter, +36.8% in the third quarter and then +30% in the fourth quarter (against harder comparisons). That would put profits in 2010 up a record 36.1% overall.
To read more about how corporate earnings will shape the market click here.
Much of the rally of the past year has been in anticipation of a profit recovery. And now that recovery is actually coming in a bit better than bulls expected, which is why they are able to elbow bears so effectively. ISI Group now figures that corporate profits will clock in at +38.8% for the first quarter (year over year) of 2010, then +42.4% in the second quarter, +36.8% in the third quarter and then +30% in the fourth quarter (against harder comparisons). That would put profits in 2010 up a record 36.1% overall.
To read more about how corporate earnings will shape the market click here.
Last Week's Sell-Off Leaves U.S. Investors in Unfamiliar Territory
Friday's sharp sell-off in U.S. stocks capped a week of heavy losses that has the market in the red for 2010. And that has investors wondering where U.S. stock prices are headed next.
On Friday, accelerating concerns about U.S. corporate earnings combined with newly emergent worries about China's health hit stock prices hard. A 6% drop in the shares of Aloca Inc. (NYSE: AA) helped send the Dow Jones Industrial Average into a 216.90-point nosedive, a 2.1% decline that had it end the week at 10,172.98. The blue-chip average fell 4.1% for the week, its worst weekly performance since February of 2009.
The Standard & Poor's 500 Index lost 24.72 points, or 2.2%, on Friday. It closed at 1,091.76 after losing 3.9% for the week. A slew of analyst downgrades on technology stocks on Friday sent the Nasdaq Composite Index down 60.41 points, or 2.7%, on Friday. It closed at 2,205.29, after losing 3.6% for the week.
On Friday, accelerating concerns about U.S. corporate earnings combined with newly emergent worries about China's health hit stock prices hard. A 6% drop in the shares of Aloca Inc. (NYSE: AA) helped send the Dow Jones Industrial Average into a 216.90-point nosedive, a 2.1% decline that had it end the week at 10,172.98. The blue-chip average fell 4.1% for the week, its worst weekly performance since February of 2009.
The Standard & Poor's 500 Index lost 24.72 points, or 2.2%, on Friday. It closed at 1,091.76 after losing 3.9% for the week. A slew of analyst downgrades on technology stocks on Friday sent the Nasdaq Composite Index down 60.41 points, or 2.7%, on Friday. It closed at 2,205.29, after losing 3.6% for the week.